Class 11 Business Studies

Small Business

NCERT Solution: Short Answer

What are the different parameters used to measure the size of business?

Answer: Following are the various parameters used to measure the size of business:

  • Number of persons employed
  • Capital invested
  • Volume or value of output of business
  • Power consumed for business activities


What is the definition used by Government of India for Small Scale Industries?

Answer: Small Scale Industries is defined as a unit in which the investment in fixed assets does not exceed rupees one crore. However, this ceiling is rupees five crore for those industries which are engaged in exports. This has been done in order to give a boost to export promotion and modernization.

How would you differentiate between an ancillary unit and a tiny unit?

Answer: If an industry supplies not less than 50% of its production to another industry, it is called ancillary unit. A tiny unit is defined as the unit with investment in fixed assets not exceeding Rs. 25 lakh. The definition of ancillary unit is based on its customer profile, while the definition of tiny unit is based on the capital invested.

State the features of cottage industries.

Answer: Following are the features of cottage industries:

  • Organised by individuals with private resources
  • Normally use family labour and locally available talen
  • Use simple equipment
  • Capital investment is small
  • Produce simple products
  • Use indigenous technology

Long Answer Questions

How do small scale industries contribute to the socio-economic development of India?

Answer: Small scale industries enjoy a unique position in terms of their contribution to socio-economic development of India. Their contribution can be highlighted as follows:

  • (a) Small scale industries account for 95% of industrial units in the country. They contribute 40% to the gross industrial value added and contribute 45% of total exports from India.
  • (b) After agriculture; small scale industries are the second largest employer in the country. They generate more employment for per unit of capital invested. Hence, they are seen as a boon for a labour surplus country like India.
  • (c) Small scale industries supply a huge variety of products to the consumers.
  • (d) Small scale industries contribute immensely to balanced regional development in India.
  • (e) Small scale industries provide ample opportunities for entrepreneurship. This sector can be a good way to channelize the latent skills of people.
  • (f) They enjoy the benefit of low cost of production and hence can produce products which are affordable.
  • (g) Due to small size, decision making is quick and nimble in small scale industries.
  • (h) They can provide customized products and services to consumers.
  • (i) They can easily adapt to the changed situations because of their small size.

Describe the role of small business in rural India.

Answer: Small business can play important role in socio-economic development in rural India. It has been traditionally viewed that people in rural areas are mainly engaged in agricultural activity. This crates the major problem of over-dependency on agriculture as a source of employment. Moreover, agriculture in India also witnesses the problem of hidden employment and seasonal unemployment. However, because of sustained efforts of the government; the situation has changed. Many people in rural India are now also engaged in other forms of employment because of growth of small business. This has helped in reducing the burden on agricultural sector and also in improving people’s income. Many people in rural areas are now involved in small businesses; like shops and manufacturing units.

Because of less employment opportunities in rural areas, many people migrate to urban centres in search of employment. This creates problems in rural as well as urban areas. Because of migration, rural areas suffer from shortage of labour. Some major urban centres; like Delhi, Mumbai, Kolkata and Chennai suffer from excess pressure on their infrastructure because of migration to these centres. This deteriorates the quality of life of people in cities. Growth of small business in rural India can help in arresting the tide of mass migration. This will help in reducing the pressure on major cities. This will also help in developing the economy in villages.

It can be said that small business can help in improving the rural economy in many ways. It can help in reducing regional imbalance in economic development. It can help in reducing income imbalances and thus can help minimize the rich-poor divide.

Discuss the problems faced by small scale industries.

Answer: Following are the various problems faced by small scale industries:

Finance: Finance can be a major problem for small business because a small business is usually started with limited finance. Because of low turnover, banks and financial institutions avoid to give loan to small business.

Raw Materials: Procurement of raw materials is another big problem for small business. A small business cannot purchase raw materials in bulk quantity. Hence, a small business is unable to bargain a good price for raw materials. Additionally, it is unable to procure quality raw materials because the suppliers usually prefer to give good quality raw materials to buyers who buy in bulk.

Managerial Skills: A small business is usually promoted and operated by a single person. Such a person may not have all the managerial skills to run a business. He may have sound technical knowledge of his business but he may not have the necessary managerial expertise to do multi-tasking. Moreover, the small business cannot afford to hire professional managers.



Labour: A small business is not in a position to offer good remuneration and hence fails to attract talented and ambitious people. Thus, a small business usually suffers from shortage of quality human resources.

Marketing: A small business owner may not have the necessary skills to market its products or services. Such businesses usually fall in the traps of middlemen. The middlemen often siphon off a major chunk of profit. This creates problems for small business.

Quality: Most of the small business focus on cutting the cost and do not try to maintain quality of products. They do not have the necessary knowledge and expertise about quality issues.

Capacity Utilization: Due to poor demand and bad marketing skills, most of the small businesses do not fully utilize their capacity. This often leads to sickness of the business unit.

Technology: Small businesses do not have necessary finance to take up the latest technology. This also results in poor output from a small business.

Sickness: Most of the small business units become sick because of certain inherent problems. A small business often has to suffer from delayed payments from its customers. It may not get demand of its products on a regular basis. Inadequate capital is also a major reason for sickness of the business unit.

Global Competition: With the opening of the Indian economy due to liberalization, small businesses also have to face competition from MNCs. The MNCs have very deep pockets and they can offer better quality at competitive prices. This creates a big headache for a small business.

What measures has the government taken to solve the problem of finance and marketing in the small scale sector?

Answer: The government has taken many initiatives to solve the problem of finance and marketing in the small scale sector. The government has set up various institutions to assist the small scale sector. Different state governments also give various incentives and tax holidays to small scale sector. Some of the initiatives are as follows:

The National Bank for Agriculture and Rural Development (NABARD) supports small scale sector through credit and non-credit approaches. It offers counseling and consulting services and organizes training and development programmes for rural entrepreneurs.

The Rural Small Business Development Centre (RSBDC) is sponsored by NABARD. It provides management and technical support to current and prospective micro and small entrepreneurs in rural areas.

National Small Industries Corporation (NSIC) works on promoting the use of indigenously available raw materials. It helps small businesses in exporting their products and works on developing export worthiness of products. It also provides mentoring and technology development services for small businesses.

Small Industries Development Bank of India (SIDBI) works as the apex body to provide direct or indirect financial assistance to small scale units.

National Commission for Enterprises in the Unorganised Sector (NCEUS) works on facilitating the small scale sector. It works on facilitating credit, raw materials, technology and marketing to the small scale sector.

Rural and Women Entrepreneurship Development (RWED) works on creating the environment of entrepreneurship among rural women. This organization provides the necessary training to achieve this goal.

Apart from the above initiatives, almost all state governments provide various incentives to promote small scale industries. Land is given on subsidized rates in special economic zones. Small scale industries get power and water at subsidized rates. They get tax holidays.

What are the incentives provided by the Government for industries in backward and hilly areas?

Answer: Some of the incentives provided by the Government for industries in backward and hilly areas are as follows:

Land: Every state offers developed plots for setting up industries. Some states do not charge rents for initial years.

Power: Power is supplied at concession rates, while some states even provide free power for certain duration.

Water: Some states provide water at nominal charges, while some states provide water at no-profit no-loss basis.

Sales Tax: Industries are exempted from sales tax in all Union Territories. Some states give five years’ exemption from sales tax.

Raw Materials: Units which are located in backward areas, get preferential treatment in allotment of scarce raw materials; like cement, iron and steel, etc.

Finance: Subsidy of 10 – 15% is given for building capital assets. Loans are also offered at concessional rates.

Tax Exemption: In hilly and backward areas, exemption from paying taxes is given for 5 to 10 years.